Chapter 4: Globalisation and the Indian Economy

Answer: Globalisation is defined as the integration between countries through foreign trade and foreign investments by multinational corporations (MNCs). An increase in foreign trade, migration of people from one country to another, the flow of capital finance from one country to another and private and public investments from foreign countries all together contribute to globalisation.

Answer: The main reason for putting barriers to foreign trade and foreign investment by the Indian government was to protect the producers and small industrialists of our country from foreign competition.

But later, it was accepted by the government that foreign competition would encourage Indian industrialists to improve the quality of their products, and that removing these barriers would increase trade and the quality of products produced in the country.

Answer: Flexibility in labour law helps companies because it helps to attract foreign investments. Instead of hiring workers on a regular basis, companies hire workers flexibly for short periods when there is intense pressure of work. This is done to reduce the cost of labour for the company. However, still not satisfied, foreign companies are demanding more flexibility in labour laws. The competition in the market is increasing each day, and if the Government does not allow flexibility with these laws, foreign companies will not be able to reach their desired profit levels.

Answer: MNCs set up and control production by investing a huge amount of money in a country’s economy. It sets up production units close to the market so that they get cheaper labour. To increase production, MNCs collaborate with some local companies as the production rate would rapidly increase. In most cases, the MNCs buy local companies and expand their production. The other way in which they control production is by placing orders for production with small and local producers. They help production using technology and heavy machinery, which makes the work more efficient and productive.

Answer: Developed countries want developing countries to liberalise their trade and investment because MNCs can set up industries in small and developing nations, which are less expensive and can earn them more profit. The labour cost and manufacturing costs decrease, and this decrease in cost results in an increase in profit. Also, setting up factories and industries in developed countries increases competition. The developing countries should, in turn, ask for a fair removal of trade barriers in order to protect their own industries.

Answer: The impact of globalisation has not been uniform because only developed countries have gained profits due to globalisation. The developing countries are only a source of setting industries and getting cheaper labour, and the entire profits are earned by the developed countries. Small industries and companies in developing countries have constantly been facing challenges in terms of earning profits and bringing their goods to the market.

Answer: The liberalisation of trade and investment policies helped the globalisation process because it has helped remove trade barriers. It has made foreign trade and investment easier. The choices of the buyers have also expanded, as now they get to choose products manufactured by not only domestic companies but also foreign companies. Competition among traders has resulted in the lower price of products. Liberalisation has spread globalisation as the decision-making power of export and import now lies with the businessmen themselves.

Answer: Foreign trade has led to the integration of markets across countries. Because of foreign trade, the producers are now able to compete and export their goods to the markets of other countries. Opportunities are provided not just for the seller but also for the buyer to get goods outside their own country. Their choices have expanded as now they get to choose products manufactured by not only domestic companies but also foreign companies.

The price of these goods has decreased because of the competition in the market. Producers from different countries are now able to compete not just with the competitors in their own country but with those across the world. The Indian market today is not flooded with goods made in India but goods from all across the world at affordable prices.

Answer: Globalisation will continue in the future as well. Twenty years from now, the production of goods will be more efficient, competition in the market will increase, advancement in every field will be evident, and the quality and quantity of goods produced will also increase. Small industries and entrepreneurs will increase as more opportunities are provided to them.

Answer: Globalisation has various advantages and disadvantages. The advantages of increased globalisation include improved trade opportunities and an increase in the number of employed because of large-scale industries. The profit market has increased, and imports and exports have increased in the nation’s economy. People can buy goods that are made across the world at lower prices.

The disadvantages of globalisation include a disproportionate increase in the income of the rich and a corresponding decrease in the income of the poor because the small-scale local industrialists are unable to earn much profit. Thereby increasing income inequality.